HR
Paid Time Off

Should the PTO Year Begin on January 1?

By Brett Derricott

With the help of modern software, designing and managing your PTO policies is easier than ever. Many of the traditional approaches to granting and tracking time off came about in an era of paper and spreadsheets. This led to policy decisions overly focused on reducing overhead and administrative costs. With a powerful PTO tracking system like Built in your corner, you have more flexibility than ever when it comes to your time off policies.

One of the most basic PTO policy decisions that needs to be made is when to begin the PTO policy calendar year. There are two main options that we see customers using, each listed below with the accompanying pros and cons.

Option 1: January 1

Historically, it has been easier to synchronize all employees to begin their PTO calendar year on January 1. Doing this makes it easier for HR to keep track of account balances, carry over, annual accrual increases, etc. Manually having to keep track of so many things for every employee makes it simpler to consolidate everyone onto the same annual PTO year schedule.

Here are the pros and cons of this approach:

Pros

  • It’s easy for everyone to understand and this PTO year approach is common enough that employees may expect it.
  • From an accounting perspective, it might be easiest to handle everything at once if your policy includes things like paying out unused time at the end of the year.
  • With everyone on the same schedule, it’s easy to compare usage/balances across employees.

Cons

  • If you increase PTO amounts with years-of-service, you’ll either have to pro-rate an increase on the actual anniversary or make employees wait until the next scheduled accrual event (which could be Jan 1 if you do lump sum accruals).
  • When you hire a person mid-year, you’ll need to pro-rate their starting balance.
  • By using the same PTO calendar year for everyone, employees who have time off available at the end of the year will all try to use it at once in December, which can create scheduling and productivity nightmares!

Option 2: Employee Hire Date Anniversary

With PTO software like Built it’s now a lot easier to have each employee’s PTO year be based on their hire date anniversary. While this would have taken a lot of extra manual work in the past, PTO tracking tools can now automate the tedious parts of this approach so that it doesn’t require any additional HR labor.

Here are the pros and cons of this approach:

Pros

  • Years-of-service increases are applied exactly on the anniversary, instead of needing to be pro-rated or delayed until the next scheduled accrual.
  • Because each employee has their own PTO calendar year, there is no need for all employees to scramble to use their remaining time off at the end of December.
  • You don’t need to calculate a pro-rated amount for the new hire’s first year.

Cons

  • If you do any year-end payouts of unused time off, this approach makes that complicated or impossible.
  • If you need to see account balances across all employees, the numbers aren’t easily compared due to the unique calendar year of each employee.

Conclusion

Depending on your company’s requirements, either approach will work. With the help of a PTO management tool, though, my personal preference is to use the employee hire date anniversary as the beginning of the PTO calendar year. I think in most cases the pros of this approach far outweigh the cons.

Brett Derricott